Caution alert amid rising VIX

The equity market failed to continue above the breakout level and opened with a one per cent gap down. Closed where it opened and indicated indecision about the further move. The Nifty sharply plunged to 15,752.40 points with a loss of 171 point or 1.07 per cent. The Pharma, Realty and the Smallcap-100 indices closed with gains in the range of 0.10 per cent to 0.43 per cent. The Bank Nifty declined by 1.88 per cent, and Fin Nifty down by 1.94 per cent. Metal, Auto indices fell by over one per cent. All other indices down by less than one per cent. India VIX rose by 8.33 per cent. The overall market breadth is negative as 1048 declines and 938 advances. About 225 stocks hit a new 52-week high, and 187 stocks traded in the upper circuit.

The Nifty opened with 169 points gap down and closed almost at the same level. After decades, HDFC Bank announced disappointing financial performance. BFSI sector's inherent weaknesses came into the limelight. As the heavyweight sector was in trouble, the whole market felt tremors. The Nifty opened below the 20DMA and formed a perfect Doji. It shows the indecision about the future movement. It registered a failed breakout. We are suspecting the conviction in the breakout for the past two days, as it missed the follow-through day and sharp retracement. Today's fall is one of the sharpest declines in the recent past.

The Nifty may fall much tomorrow, as it took support at trend line connected bottoms of 18th June and 9th July. Today it tested the support line for the fourth time. Only below today's low of 15,707.50 points, the Nifty will retest the 15,635 levels. As it closed below the 20DMA, the weakness may persist. Now, the question is, will the consolidation continue, or a breakdown will occur? In the next two days, we may get a clear answer to this. There is a possibility of forming an inside bar tomorrow. A 60-point recovery in the last hour maybe because of short covering. There is a short build up in the futures segment and huge call selling witnessed in the options segment. The Nifty registered a distribution day. In any case, the Nifty closes below 15,635 points in the next two days, and the box reversal is possible towards 15,400 points. Try to be cautious as the VIX is rising.

(The author is financial journalist, technical analyst, family fund manager)